The Utah Educational Savings Plan Trust has settled a Securities and Exchange Commission case that accused it of making false statements to investors about problems with the state 529 college savings plan’s accounting system.
The SEC case against Utah most likely signals that it is investigating other states’ 529 plans in an effort to uncover similar problems, said Joe Hurley, the founder of the college savings plan Web site Savingforcollege.com. “I think the announcement [of the settlement] is a wake-up call to say the SEC is interested in the practices and disclosures of accounting systems for 529 plans,” he said.
As 529 plans have grown in recent years, some states have struggled to develop accounting systems to keep pace with the rise in assets under management, said Kenneth Israel Jr., the district administrator for the SEC in Salt Lake City.
“529 plans started out fairly small, and they grew so rapidly that some of the states have had trouble keeping their systems in line with the increase in assets,” he said. But he declined to say whether the agency is investigating other states’ accounting.
The Utah 529 plan invests participant funds by pooling them in omnibus accounts with outside fund managers. However, its accounting system records additions to or withdrawals from individual participant accounts at least a day before the funds are actually added to or withdrawn from the omnibus accounts.
This timing difference allowed a buildup of more than $505,000 in the omnibus accounts from 2002 until July 2004. The trust’s rules said this money should have been allocated to plan participants.
An internal investigation last year established that the trust’s then-director, Dale Hatch, had segregated the unallocated funds into his own undisclosed 529 accounts and subsequently transferred more than $85,000 into his personal bank account. Mr. Hatch was fired.
